Standard vs Itemized Deduction
Published on November 27, 2024
by Andrew Landin
Andrew Landin is an IRS Enrolled Agent and Tax Lawyer specializing in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in the UK and Australia.
Table of Contents
How do I choose between the Standard Deductions and Itemized Deductions?
The choice between taking the Standard Deduction and Itemized Deductions depends on your specific expenses. Whichever option lowers your taxable income the most is generally the best choice.
What’s the difference between Standard Deductions and Itemized Deductions?
The Standard Deduction is a flat amount that the IRS allows everyone to subtract from their income. For 2025, it’s US$15,000 for single filers and US$29,200 for married couples filing jointly. This deduction doesn’t require listing individual expenses.
Itemized Deductions, however, involve listing specific expenses you had during the year, such as mortgage interest, state taxes, and charitable contributions.
Choosing to itemize may take longer and requires receipts or records but could result in a higher deduction if you had many qualifying expenses.
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When is it better to choose Itemized Deductions?
If your deductible expenses are minimal, the Standard Deduction is often the simplest choice. However, if you’ve had high medical bills, significant mortgage interest, or made large charitable donations, itemizing may save you more on taxes.
Here are some expenses that can be included in itemized deductions:
- Mortgage Interest: Interest paid on a home mortgage, including loans for a primary or second home.
- Property Taxes: State and local property taxes, capped at a combined US$10,000 for all state and local taxes, including income or sales taxes.
- Charitable Contributions: Donations to qualified charities, with receipts required for higher amounts.
- Medical and Dental Expenses: These can be deducted if they exceed 7.5% of your adjusted gross income (AGI) and cover necessary treatments, prescriptions, and doctor visits.
- State and Local Taxes: You can choose either state income taxes or sales taxes but not both.
- Casualty and Theft Losses: Only applicable if you suffered losses due to federally declared disasters.
- Investment Interest: Interest on loans for investments in taxable assets can also be deducted.
Keep in mind that some deductions, like charitable contributions, have income limits, and others, such as casualty losses, apply only under specific conditions.
Who is more likely to benefit from itemizing?
People with considerable deductible expenses tend to benefit more from itemizing. Here are some common examples:
- Homeowners: Mortgage interest and property taxes often result in higher itemized deductions than the Standard Deduction.
- Higher-Income Filers: Those with higher incomes may benefit from state and local tax deductions (SALT), which can sometimes exceed the Standard Deduction, even with the SALT limit.
- Individuals with High Medical Bills: If your medical costs exceed 7.5% of your AGI, itemizing could save you more.
- Charitable Donors: Those who donate large sums to charities can deduct these contributions by itemizing.
Note: The Tax Cuts and Jobs Act (TCJA) raised the standard deduction amount significantly, which means fewer people are choosing to itemize deductions. This change, effective since 2018, has made itemizing beneficial only if your deductible expenses are large enough to exceed the standard amount.
Those with high medical expenses, mortgage interest, or substantial charitable donations might still save more by itemizing.
What are the Standard Deduction amounts for 2025?
The IRS sets standard deduction amounts each year based on filing status. Here’s what you can expect for 2024:
- Single or Married Filing Separately: US$15,000
- Married Filing Jointly or Qualifying Widow(er): US$30,000
- Head of Household: US$22,500
Extra deductions apply for taxpayers who are 65 or older or legally blind:
- Single or Head of Household: Add US$1,950
- Married (filing jointly or separately): Add US$1,500 per person
These amounts reduce your taxable income automatically, so there’s no need to track specific expenses, as you would with itemized deductions.
Can I switch between Standard and Itemized Deductions?
Yes, each year you can choose either the standard deduction or itemized deductions, based on whichever lowers your tax bill the most.
This flexibility allows you to review your deductions annually and select the method that gives the best tax advantage:
- You can decide on a year-by-year basis.
- There’s no penalty or restriction on switching methods each tax year.
If you decide to itemize, you’ll need records of each deduction to satisfy IRS requirements if asked for verification.
Can medical expenses be deducted if I take the Standard Deduction?
No, you can only deduct medical expenses if you itemize your deductions.
For itemized deductions, only the portion of medical expenses exceeding 7.5% of your adjusted gross income (AGI) is deductible. Choosing to itemize, however, only makes sense if these and other deductible expenses add up to more than the standard deduction amount for your filing status.
What if my Itemized Deductions doesn’t exceed the Standard Deduction?
If your total itemized deductions are less than the standard deduction amount, it’s more beneficial to take the standard deduction.
The IRS allows you to use whichever option provides the larger deduction. So, you don’t need to itemize unless your itemized expenses exceed the standard deduction available to you.
What documentation do I need to itemize deductions?
If you itemize, keeping receipts and records for deductible expenses is necessary.
Documentation for medical costs, mortgage interest, charitable donations, and other allowable expenses serves as proof in case the IRS requests verification. It’s best to save these records for at least three years after filing.
Can I use the Standard Deduction if I have mortgage interest?
Yes, you can claim the standard deduction even if you paid mortgage interest. However, if the mortgage interest and other deductible expenses (like medical bills or donations) exceed the standard deduction, itemizing may save you more on taxes.
